Tim Cook tells Congress why Apple won’t move $100 billion back home

Senators ask why Apple moves profits into an Irish company that pays no taxes.

There's a disconnect between how Apple CEO Tim Cook sees his company's tax strategies and how some members of the US Senate see it. That became clearer than ever today after Cook and two other Apple executives testified before Congress, explaining why they're holding most of their international income in Irish subsidiaries like Apple Operations International (AOI), which declare no tax residency anywhere in the world.

AOI hasn't filed a tax return anywhere in the world for the last five years, yet it earned $30 billion in income from 2009 to 2012, according to a Senate report released yesterday.

Senator Carl Levin (D-MI), who chairs the Senate subcommittee where Cook testified, opened the proceedings today by suggesting that Apple has avoided paying $9 billion in taxes with strategies like those seen at the Irish subsidiaries.

It wasn't just Levin who hammered Apple over these tax issues, either. Sen. John McCain (R-AZ) noted that 95 percent of Apple's research and development takes place in the US, with less than 1 percent of it in Ireland. "How is it possible that no tax goes to any country?" asked McCain.

Cook described AOI as merely "a holding company" for money earned abroad that has already been taxed in the various countries it was earned in. He also noted that AOI earns investment income, which "is taxed in the US at the 35 percent level."

Beyond that, Cook mostly stuck to talking points that were laid out in interviews he has given over the past several days, noting that his company paid $6 billion in taxes last year and suggesting that the App Store alone has created 300,000 new jobs in the US.

Other than McCain, however, Republicans were more protective of the Apple executives. Sen. Rand Paul (R-KY) in particular lambasted the whole event and was more concerned with government "bullying" than with Apple's tax bill. "I'm offended by a $4 trillion government bullying one of America's greatest success stories," Paul said. He added: "I'm very frustrated by these proceedings... They're just doing what every company does."

In the end, Cook wouldn't agree to move more of Apple's cash to the US while it has a 35 percent corporate tax rate. "I am not proposing a zero rate," said Cook. "My proposal is that we have a reasonable tax for bringing back money from overseas." He called for a "dramatic simplification" of the US tax code.

Apple struck a deal with Ireland in the 1980s that made sure its corporate tax rate there would never be above 2 percent. The US corporate tax rate is ostensibly the world's highest at 35 percent, but after deductions the effective corporate tax is around 12 percent, the lowest it has been in decades.

The hearing ended with some final words from a dissatisfied Levin.

"We've got to change this system. You made a unilateral decision—three Apple employees decided where these profits are going to be taxed or not taxed. Folks, it's not right. That is not right."

Cook described AOI as merely "a holding company" for money earned abroad that has already been taxed in the various countries it was earned in. He also noted that AOI earns investment income, which "is taxed in the US at the 35 percent level."

If our current tax code allows for it, then why is Apple getting grilled like this? Like any major corp, I'm sure they have entire teams of tax attorneys to take advantage of every possible thing in the tax code. If congress has a problem with that, then perhaps they should consider simplifying things once and for all.

Well, I agree with Levin on that. But pulling in Apple to make the point is just grandstanding and shifting the blame. Congress is responsible for this and I have seen zero effort by them to actually address the issue.

Senator Levin has had more to do with creating the current political and tax system than almost anyone else, having been in power since 1978. As Rand Paul says, he needs to look in the mirror rather than whine about what other people have done under his rules.

If our current tax code allows for it, then why is Apple getting grilled like this? Like any major corp, I'm sure they have entire teams of tax attorneys to take advantage of every possible thing in the tax code. If congress has a problem with that, then perhaps they should consider simplifying things once and for all.

Because they are one of the most profitable US companies, which is also in the public eye and is using as many avoidance schemes as they can.They also recently issued bonds for a share buyback/dividend program rather than using their own cash reserves.

What Apple has been doing is a problem. The thing is, it isn't an Apple specific problem. Plenty of other companies are doing the exact same thing and have been for years. If you're going to call hearings on Apple for doing it, you should call them on everyone else who does it. Or you could try to fix the system rather than attack just one of the many who are abusing the loopholes.

I am so sick of Congress. First, they spend us into oblivion. Second, they fashion a tax code that is ripe with legal loopholes. Third, they wonder why people and businesses take advantage of the loopholes.

It's time to fix the tax code. 15% across the board, every person, every company ... with the only deductions for mortgage interest and charitable donations.

Apple broke no laws, is maximizing profit by playing by the rules, and is doing what every company does.

I can see how it feels wrong, but until laws change then Apple and other companies are forced to continue doing this.

Apple says they broke no laws.

The substance of what they are doing to avoid tax may be fine in some ways, but they can still be investigated and hit with massive tax bills, potentially, due to transfer pricing.If the US tax people decide that Apple is using ridiculous transfer pricing to keep profits in low tax jurisdictions, they could potentially call BS on what they are doing.

Since they "sold" their IP to a subsidiary, the licensing/royalties could be questioned.Supposedly one thing they are doing is "selling" products from China to an Irish subsidiary and then on again to various other places without the Irish subsidiary receiving anything or doing anything to add value. You could again question the validity of the transfer pricing involved, and therefore the profits being shifted around.

There are many areas where you can comply with the "letter" of the law, as it is loosely written, but be caught because you didn't comply with the spirit, and on closer inspection a case can be made that what you are doing does not in fact comply with the tax law.

That's also why consultants and tax advisers get paid the big bucks, to help corporations comply with the loose spirit and try to avoid getting dinged when closer inspection of the transactions is undertaken.

I don't understand the point of these hearings. Is it to gather information in order to make changes to the tax code to avoid this behavior? Is it to intimidate companies that make legal use of the tax code to minimize their tax payments?

I approve the former, but the latter is a *very* bad trend.

I have to admit, it smells to me like the latter, which is pretty repugnant. If there's a problem with the tax code, then change it. Yes, such changes will have its costs (*every* policy is a matter of trade-offs), but that's life. This seems more like a recipe for selective shaming (when it is politically convenient to do so) of companies that behave legally. And *that* is a recipe for "legal" corruption. (Donate and we'll ignore this, etc.)

If they get apple up their, why don't they get GE up there? GE is a massive, highly profitable company that paid no US taxes last year. Meanwhile, Apple, according to their filings, has paid 26% on US taxable income. If its true, as Cook says, that the Ireland holding's is income earned abroad upon which they've already paid the appropriate taxes, then the Senate investigators had better do better homework.

I find it appalling that people - flesh and blood people - pay income tax on their wages first, then eat with what is left, meanwhile corporations can take every deduction possible, then pay tax on that.

I agree the US tax rate needs to be changed - to a simple 10% flat tax all across the board. No deductions.Even as a mortgage owner, I do love my mortgage and property tax deductions - but at 10% I won't complain. At 20% I expect those deductions. I find it equally appalling that anyone gets a lower rate because of creative accounting tricks.

Apple broke no laws, is maximizing profit by playing by the rules, and is doing what every company does.

I can see how it feels wrong, but until laws change then Apple and other companies are forced to continue doing this.

Playing by the rules and doing what is ethical are two separate things. Something that Apple is showing us today. They have been and still are an unethical company. And any company who pulls this is the same. ANY COMPANY.

I'm no Apple fan (I'm not a hater either...I think their fanbois are a tad 'off', but that's another discussion), but what Cook says is true, no harm, no foul. If the money has already been taxed by the other countries, why does the U.S. government feel they're entitled to a slice of it? I wish I could do something with my money to where it wasn't taxed more than once (like when I earn it then again when I spend it).

I find it appalling that people - flesh and blood people - pay income tax on their wages first, then eat with what is left, meanwhile corporations can take every deduction possible, then pay tax on that.

As much as people want to blame Apple and other corporations for utilizing tax loopholes and "strategies" I can't blame them. Afterall, they ARE required by law to do what is in the benefit of their stockholders or in other words, make a profit where legal (http://en.wikipedia.org/wiki/Profit_motive).

man...can't believe I'm going to use this but... "Hate the game, not the player"

Here is issue. These corporations are taking advantage of the infrastructure of the US, which is being paid for by the citizens. By not paying their fair share, they are effectively subsidizing their tax burden on the poor and middle class. If our system was SO tax heavy and SO burdensome to corporations, they would all incorporate in other countries. Yet here they are.

I don't understand the point of these hearings. Is it to gather information in order to make changes to the tax code to avoid this behavior? Is it to intimidate companies that make legal use of the tax code to minimize their tax payments?

I think it's hidden option #3, it's grandstanding so that their constituents can read about them in the paper. It's highly unlikely the tax code is going to change, and they know a company like Apple can't be bullied into stopping entirely legal activities, but they need to show the people that they're "doing something" about the situation.

"We've got to change this system. You made a unilateral decision—three Apple employees decided where these profits are going to be taxed, or not taxed. Folks, it's not right. That is not right."

My edits: "We've got to change this system. Congress made a unilateral decision—535 self-important do-nothings decided to impose on American companies a labyrinthine tax system, featuring lobbyist-funded loopholes by the thousands. Folks, it's not right. That is not right."

I am so sick of Congress. First, they spend us into oblivion. Second, they fashion a tax code that is ripe with legal loopholes. Third, they wonder why people and businesses take advantage of the loopholes.

It's time to fix the tax code. 15% across the board, every person, every company ... with the only deductions for mortgage interest and charitable donations.

Why, in your perfect world of tax freedom, would the non-homeowners taxpayers subsidise your choice to buy a home with a mortgage?

Apple broke no laws, is maximizing profit by playing by the rules, and is doing what every company does.

I can see how it feels wrong, but until laws change then Apple and other companies are forced to continue doing this.

Apple says they broke no laws.

The substance of what they are doing to avoid tax may be fine in some ways, but they can still be investigated and hit with massive tax bills, potentially, due to transfer pricing.If the US tax people decide that Apple is using ridiculous transfer pricing to keep profits in low tax jurisdictions, they could potentially call BS on what they are doing.

You're making up your own problem and then saying that Apple may be guilty in doing it. Very clever!

There's nothing illegal in moving earnings upon which taxes have already been paid into a jurisdiction where that money is parked, earning interest, upon which taxes are then paid. This seems to be the deal with Ireland. Ireland is a small country which has financial problems. Having that much Apple money in its banks, and other interest earning accounts would be of great benefit to their economy. I see nothing wrong with Apple making a deal with them.

We can look to this country when a large company wants to build some big facility, and the county, State or other jurisdiction gives them a long term tax break to get the investment in. Nothing wrong with that either.

If our current tax code allows for it, then why is Apple getting grilled like this? Like any major corp, I'm sure they have entire teams of tax attorneys to take advantage of every possible thing in the tax code. If congress has a problem with that, then perhaps they should consider simplifying things once and for all.

Investigating the loopholes in the current tax code so as to inform potential revisions is the purpose of this hearing. Well, that and grandstanding.

We are in a transitional time period. People want the current tax systems and spending curves to continue.

However, as populations continue to rise and productivity per a person continues to increase, it s a real question how future economies will fund necessary programs.

If we reach a point where there are too few labor positions, we will have to find a balance that allows a living allowance for people to do jobs that enrich the lives of those around them. (care for parks, create culture, etc.)

If your on either of the extreme ends of our socioeconomic spectrum, there is reason to fear the future.

I am so sick of Congress. First, they spend us into oblivion. Second, they fashion a tax code that is ripe with legal loopholes. Third, they wonder why people and businesses take advantage of the loopholes.

It's time to fix the tax code. 15% across the board, every person, every company ... with the only deductions for mortgage interest and charitable donations.

Why mortgage and charitable deductions. I have no interest in there being a tax advantage for religious or other nonprofit origination. Give to them out of generousness of your heart not because it allows you to skirt some tax bracket. Furthermore. I have no interest in supporting a tax shelter because some dude wants to hide his income in a big house.

I say 10% across the board. No filing No deductions. Income is removed at time of deposit in a bank account.

or...

just remove the income tax and replace with a VAT style tax. every transaction is skimmed for some percentage. You move money from one investment to another...2%. you move money from checking to savings...2%. you move money from checking to finished goods purchased from walmart...2%. not perfect but lets face it the IRS is nothing more than enforcement agency to bully and redistribute wealth.

Also it would make these microsecond-transaction computing trading systems really expensive to run and would help smooth out the volatility of the market.

I don't know. I kind of like the idea that if I don't break the law (and no-one is suggesting Cook did), I shouldn't have to fear imprisonment merely because I've offended someone's moral sensibilities.

I think Apple should be paying more taxes. But there's no way on *earth* that they should be punished for following the law.